Impact of Trade and Other Partnerships on the National Budget

By IAPRI Staff

A government budget is a forecast by a government of its expenditures and revenues for a specific period of time. For the Zambian government this is an annual forecast that runs from January to December. The Zambian Parliament approves the national Budget and has the mandate to understand and advise on matters related to Budget design and execution. Some of these functions are performed through the Budget Committee which calls various aspects experts to comment on matters related to the Budget.

The Indaba Agricultural Policy Research Institute IAPRI was called to appear before the Budget Committee on the 19th of January 2020 to comment The Budget Committee of Parliament requested IAPRI to provide information pertaining to the impact of trade agreements and partnerships on the national budget during the period of the 7NDP and recommend the ways forward. In its submission IAPRI mentioned that Zambia is a party to various, unilateral, bilateral, regional, and multilateral trade partnerships and agreements. Key among these include, the Common Market for Eastern and Southern Africa (COMESA) Free Trade Area, The Southern African Development Community (SADC) Trade Protocol, COMESA-SADC-Eastern, Southern Africa (COMESA-SADC-ESA) and the African Continental Free Trade Agreement (AfCFTA).

IAPRI reported that despite all these trade agreements being in place, there has been very little impact in terms of shaping the national allocations. The national allocation trends have not changed over years (Figure 1). Agriculture is one key sector that the government has been promoting for non-traditional exports. However, allocations to the agricultural sector have been trending downwards since 2017, and have not kept pace with spending growth of the national budget.

Figure 1: Budgetary Allocations by Type (2017 to 2020)
Source: Ministry of Finance

IAPRI reported that the proportion of agriculture to national budget has declined from 9.4% in 2017 to 3.7% in 2020 (Figure 2). More so, the country has not benefited much from these trade agreements to raise revenue to finance the national budget. This is mainly because the country is still facing the same basic problem of copper dependence on exports and the challenges in utilizing trade opportunities. Zambia has not fully diversified the economy into new high-value industries and manufacturing.

Figure 2: Budgetary Allocations to the Agriculture Sector by Type (2017 to 2020)

Source: Ministry of Finance

In terms of net revenue gains and losses from trade partnerships, IAPRI reported that Zambia has continued to export and import agricultural products to and from trading partners. Figure 3 shows the value of agricultural imports and exports in Zambia for the period 2017 to 2019. Between 2017 and 2018 Zambia’s agricultural exports increased from USD 396 million in 2017 to USD 444 million in 2018, before dropping to USD 403 million in 2019. With regards to net revenue, Zambia’s agricultural trade recorded net gains in 2017 and 2018, whereas the sector recorded net loss in 2019 – when the value of imports was more than exports.

Zambia’s Agricultural Imports and Exports, 2017 – 2019

Source: ITC Trade Map and CSO (various years)
Note: The 2018 and 2019 figures are only for January to September

IAPRI reported that although not directly linked to trade partnerships, Zambia’s ad hoc fashion of imposing export bans on key agricultural commodities, such as maize and mealie meal, soybeans and its products, has resulted in the country losing export revenue. For example, in 2017, the government imposed an export ban on soy beans without prior communication to stakeholders as well as cancelling existing exports permits at the time. An assessment by the Soya Policy Action Group [SOPAG] (2017) revealed that Zambia as a country lost about ZMW 1 billion in export revenue due to the ban.

Similarly, in the 2020/2021 agricultural marketing season, Zambia had the potential to export 710,000 metric tons of maize, which would earn the country at least USD 185 million. However, due to the export ban on maize and mealie meal, the country has not been able to benefit from this significant export potential to earn the much-needed foreign exchange.

IAPRI submitted that further, Zambia’s tax regime has affected the competitiveness of Zambian products, particularly edible oils, in the region. For example, the Value Added Tax (VAT) on edible oil produced in Zambia makes Zambian edible oil less competitive against products from countries like Tanzania and Kenya, where such products are VAT exempt. As a result, Zambian market is flooded with edible oil from East Africa, and sometimes the East Asia, while Zambia edible oil has failed to penetrate regional markets because it is less competitive in terms of prices.

IAPRI submitted that for Zambia to maximize the benefits from trade partnerships and enhance the country’s agricultural export earnings which will contribute towards national budget, the following recommendations should be considered:

  1. Ensure predictable and transparent trade policies that sends the right signal for private sector investment in agricultural production and trade.
  2. Promote export of processed agricultural products, rather than raw material. This will help increase revenue as well as create employment along the agricultural value chain
  3. Revise tax regime to enhance competitiveness of Zambian products in the region.
  4. The Ministries of Agriculture and Ministry of Commerce Trade and Industry should coordinate agricultural trade policies to ensure Zambian products are competitive in countries that Zambia has trade partnerships with.

IAPRI was represented by the Outreach Director, Mr Ballard A.M. Zulu, the Research Associate, Mr Auckland Kuteya, the Communications Specialist Mrs Christabel Chabwela and the Librarian Mr Cardinal Hachikona. The meeting was chaired by the Honourable Mwalimu Simfukwe who was the Chairperson for the Committee.

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